Brazil budget gap to narrow, but debt stays high
Reuters, Tuesday, November 17, 1998 at 18:55
By Joelle Diderich
BRASILIA, Nov 17 (Reuters) - Brazil's bloated fiscal
deficit is set to narrow in 1999 thanks to a massive fiscal
effort, but the government is still forecasting a worryingly
high interest rate bill for next year, economists said Tuesday.
Finance Minister Pedro Malan, speaking Friday after the IMF
announced a $41 billion loan deal for Brazil, said he expected
the nominal budget gap to shrink to 4.7 percent of gross
domestic product (GDP) in 1999 from more than 7 percent now.
Brazil is attacking the budget deficit, considered the
Achilles heel of its four-year economic recovery, with a
sweeping austerity plan designed to save or raise $84 billion
over the next three years.
The towering fiscal deficit had raised fears among
international investors that Brazil would be unable to meet its
debt obligations and might be forced into devaluing the local
currency, the real.
But Malan's budget gap forecast has raised eyebrows in
local markets, with some economists saying his estimate appears
pessimistic despite the fact that high interest rates will
continue to swell the debt stock next year.
Official estimates see net public sector debt rising to
44.9 percent of GDP in 1999 from 41.9 percent of GDP in 1998,
assuming the overnight rate averages 21.8 percent next year.
"The market is interested in knowing how these numbers will
tally," said Ana Cristina Costa, chief economist at BCN
Alliance in Sao Paulo. "The government is said to be including
some fiscal skeletons into debt."
A budget deficit of 4.7 percent of GDP, coupled with the
government's target of a primary budget surplus of 2.6 percent
of GDP, implies a debt payment bill of 7.3 percent of GDP in
1999.
According to some, this is more than the government will
shell out this year, with interest rates still teetering close
to 40 percent.
Some analysts said the forecast was too gloomy, considering
the Central Bank last week began steadily lowering the
benchmark overnight rate it pays on 66 percent of its internal
debt of around $270 billion.
The rate now stands at an annualized 38 percent.
"Just to give an idea, in this crisis year interest rate
payments will be 7 percent of GDP," columnist Miriam Leitao
said in O Globo newspaper. "The explanation from the economic
team is that it is better to be conservative, to be safe than
sorry."
Others said the forecast appeared accurate, although they
conceded the government may have darkened the picture in order
to avoid having to renegotiate its arduously conquered credit
line with the International Monetary Fund.
"The worse the number the government comes out with, the
more credible it is," noted Constantin Jancso, economist at MCM
Consultores.
He said a 4.7 percent budget gap appeared "pretty
reasonable" given that interest rates would fall very
gradually, and only if Congress approved unpopular fiscal
measures aimed at saving $23.5 billion next year.
Marcelo Allain, chief economist at BMC Bank in Sao Paulo,
said that although the government figures were coherent, he
hoped the debt payment bill would come in lower than expected.
"Interest rates are set to fall quite significantly, so
despite the fact that the stock of debt will be larger, the
size of interest rate payment spending should be reduced," he
said.
The debate was unlikely to be cleared up Wednesday, when
the Central Bank will announce public sector deficit data for
January to August. The budget gap stood at 7.02 percent of GDP
in the January-July period.
Economists said the August figures would be boosted by
$4.87 billion in revenues from the privatization of federal
telephone system Telebras (SAO:TELB3) in July.
But the data will be considered largely irrelevant, as they
cover the period before the Central Bank yanked up rates to
stem a massive outflow of dollars amid a global crisis in
emerging markets in September.
joelle.diderich@reuters.com))
Copyright 1998, Reuters News Service |
